P&G Sales Growth up 8% for Fiscal Fourth Quarter

Analysts Positive Despite Continued Slowness From Gillette

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CINCINNATI (AdAge.com) -- Procter & Gamble Co. dispelled worries spawned by its prior-quarter performance with industry-leading 8% organic sales growth for the fiscal fourth quarter ended June 30.
The view is sunny from P&G's Cincinnati headquarters after today's fiscal fourth-quarter earnings report.
The view is sunny from P&G's Cincinnati headquarters after today's fiscal fourth-quarter earnings report.

Powered by advertising spending increases, sales growth for the world's biggest marketing spender came in two points ahead of P&G's guidance of 4%-6% and its 6% growth rate last quarter. For the year, organic sales rose 7%.

Overall, including the Oct. 1 Gillette acquisition and currency effects, P&G sales rose 25% to $17.8 billion for the quarter and 20% to $68.22 billion for the year. Earnings per share rose 6% for the quarter to 55 cents and 4% for the year to $2.64.

Not troubled by rising costs
Despite rising energy and raw materials costs that weighed on ad spending by competitor Kimberly-Clark Corp., P&G increased ad outlays for the quarter, Chief Financial Officer Clayton Daley said on a conference call. That was in contrast to last year, when P&G pulled back on ad spending in the back half of its fiscal year.

P&G forecast 4%-6% organic sales growth for the current fiscal year, in line with its long-term target, boosted by 5%-7% in the current quarter. Mr. Daley said he expects price increases to moderate as the year goes on, accounting for the slowing over the course of the year.

Chairman-CEO A.G. Lafley said he isn't sure where advertising spending will track as a percent of sales this year, but touted the positive impact on return on investment from growing use of marketing mix modeling on brands such as Pantene and Always. "To be 10% to 20% more effective on flat spending," he said, "I'd be a happy camper."

But the key metric for P&G, Mr. Lafley said, isn't spending as a percent of sales, but impact on brand equity and consumer value ratings. And he said P&G's 16 biggest brands all showed improvements on those yardsticks in the past year.

Price hikes play role
For the first time in years, pricing is playing a significant role in P&G's top-line growth. Cost-driven price hikes added one percentage point of growth, as did product mix, driven by what Mr. Daley in a conference call termed "strong consumer trade up in developed markets."

P&G's top-line growth in China returned to unspecified "double digits" in the fourth quarter after falling below that rate for the first time in years last quarter, Mr. Daley said.

The organic top-line growth rates were slower than the 9% for the quarter and 10% for the year posted last year, but still at or near the top rates posted by competitors who have reported so far.

The performance "should put to rest concerns of deceleration and potential disruption caused by the integration of Gillette," said Morgan Stanley analyst Bill Pecoriello in a research note.

The market should respond strongly to the results, Banc of America Securities analyst April Scee said in a research note after "strong negative response" to March quarterly results she termed "tepid."

Gillette still dragging
Still, Gillette, which didn't figure into the organic growth numbers, remained a surprising laggard, given that P&G raised its long-term organic sales growth targets by a percentage point due to the acquisition. Gillette organic blade and razor sales for the quarter fell 5% to $1.2 billion despite the highly touted U.S. launch of the new Fusion razor. Gillette's global retail sales were up 5%, P&G said, as integration-related inventory adjustments pulled down global results.

Mr. Lafley acknowledged "we're a little bit behind where we wanted to be" on blade sales for Fusion and on target for sales of razor handles. Both assessments were below prior reports by company executives that put both razors and refill sales ahead of projections and comparable periods in the launch of the Mach 3 system nearly eight years ago.

Mr. Lafley said comparisons between Fusion and Mach 3 aren't entirely relevant, because Mach 3 was launched in the summer, while Fusion was launched in the winter, meaning it hit key promotional periods later in its cycle than Mach 3. Mr. Daley said the $57 billion Gillette deal remains on track both in delivering cost savings and top-line acceleration as planned at the outset of the deal.

Fabric and home care led the P&G top-line strength in the quarter, with organic sales up 9%, followed by health care at 8% and beauty care at 7%. Pulling down the company average were baby and family care at 5%, and pet food, snacks and coffee at 2%.
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